The Center for Economic and Policy Research recently released "The Budget Deficit Scare Story and the Great Recession" in which it states that concerns about the $1.3 trillion deficit are just "a well-funded public relations campaign (that) has managed to largely push the economic crisis to the back burner." The Center argues that the surge in the deficit in the last two years is a result of lower tax revenues and necessary stimulus spending, both a result of the recession. The Center also correctly notes that the deficit increase over the next decade is a result of higher defense spending and mandatory Medicare costs. These are both reasons to continue to be concerned about the budget deficit, as I have been warning for the last three years.
What It Means to You
To really drive an economic recovery, the budget should focus more on helping small businesses, reducing foreclosures and removing toxic debt so banks can lend again.
To really hack away at government spending, two areas must be reduced: defense-related security ($895 billion), Medicare ($491 billion) and Medicaid ($297 billion). Despite the press, stimulus spending is not the lions' share, at only $136 billion. However, now that the economy is getting back on its feet, is it even necessary?
President Obama's $3.8 trillion budget for FY 2011 will create an unnecessary deficit of $1.4 trillion that will ultimately drag the economy. Deficit spending of $1.4 trillion in FY 2009 and $1.6 trillion in FY 2010 was needed to boost the economy. But Fiscal Year 2011 doesn't start until October 2010. Most economists agree that the economy will be out of serious danger by then, and some even think the Fed might raise interest rates.
By adding to the staggering $12 trillion debt, it could actually put a drag on the economy, especially in the long term. That's because it acts like a tax on future generations.
- Budget and Spending Primer
- Discretionary Spending
- Obama Budget Throws Peanuts Towards Small Businesses
- Mandatory Spending
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